China’s E-Commerce Law; A Comparison to the Rules for E-Commerce in the EU

As a consequence of the commercialization of the internet, the world of the consumer has experienced a fundamental change. The e-Commerce market is constantly changing and, in response to the fact that the e-Commerce markets between European Union and China are getting more and more intertwined, it seems to be necessary to provide a legal framework to overview the situation within the scope of e-Commerce.

I. European Union: e-Commerce Directive 2000/31/EC

The e-Commerce Directive 2000/31/EC has created the legal foundation for online services, including e-Commerce in the Internal Market. The Directive establishes harmonized rules on issues such as the transparency and information requirements for online service providers, commercial communications, electronic contracts and limitations of liability of intermediary service providers . It also heightens administrative cooperation between the EU Member States and the role of self-regulation.

1. The scope of application

The European law on e-Commerce applies to any natural or legal person providing an information society service . The definition of the notion “information society service” is given by Directive 98/48/EC. Pursuant to Article 1 of Directive 98/48/EC, an information service refers to any service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services.

Therefore, the most significant business area concerned is online-retail. However, 98/34/EC exempts certain services from the definition and 2000/31/EC furthermore states, that the e-Commerce law does not apply to areas such as taxation, antitrust law and data protection.

2. Internal Market Clause

The internal market clause is a key principle of the e-Commerce Directive ensuring that providers of information society services are subject to the law of the Member State in which they are established and not to the law of the Member States where the service is accessible. The declared objective of the e-Commerce Directive 2000/31/EC is to contribute to the proper functioning of the internal market by ensuring the free movement of information society services between the Member States . Derogations to the free movement of information society services are possible under strict conditions, as measures necessary for public policy, protection of public health, public security, protection consumers, proportionality test . Provisions contain in Article 3 do not apply to intellectual property rights, consumers contracts, freedom of parties to choose the applicable law.

3. Liability for online Intermediaries

ECD harmonizes the conditions under which information society service providers cannot be held liable for a third party illegal content. The liability limitations apply to all forms of illegal activities, including copyright and trademark infringements, defamation, misleading advertising etc. The liability exemptions apply to both civil and criminal liability .

The e-Commerce Directive exempts intermediaries from liability for the content they manage if they fulfil certain conditions :

Service providers hosting content, once they are aware of the illegal nature of the hosted content, they need to remove it or disable access to it expeditiously;

To be covered by the liability exemption they have to play a neutral, technical and passive role towards the hosted content.

Only activities mentioned into Articles 12 to 14 (Mere Conduit, Caching, Hosting) can be exempted, which means that for some service provider could be held accountable.

4. Prohibition of a general monitoring obligation

Article 15 reads that general monitoring obligations imposed by Member State on providers are expressly prohibited, when providing the services covered by Articles 12, 13 and 14. General obligations include the monitoring of the information which operators transmit or store or the seeking of facts or circumstances indicating illegal activity are not permitted.

The e-Commerce Directive 2000/31/EC highlights the principle of mutual recognition of EU Member States national law. The European Union’s hardest aim is to create a Digital Single Market in order to abandon the current situation of fragmented national markets and regulations and create one borderless market with harmonized legislation, therefore both business and consumers throughout European Union could benefit it.

1. The modernization of data protection

The GDPR (the General Data Protection Regulation came into force on May 25, 2018), that has replaced the Data Protection Directive 95/46/EC, has created an EU-wide set of standards for the protection of digital personal data for EU internet users, regardless of the location of the entity holding their data. The GDPR requires organizations to comply with specific rules to guarantee privacy rights to internet users . Some key requirements include:

2. The cross-border portability of online contents services in the internal market

The portability regulation became applicable in all EU Member States on April 1, 2018. The new measures ensure equal access from abroad to content legally acquired or subscribed to in the member state of residence.

3. The cross-border parcel delivery rules

Under the recent reform entered into force on May 22, 2018, delivery tariffs are published on a website to help users choose the best rates. Increased transparency should create competitive pressure, bringing down prices that cannot be justified by objective factors . The new rules are expected to be of particular benefit to consumers and small retailers, who do not have the bargaining power to negotiate better rates.

4. The agreement to unlock e-Commerce by stopping unjustified geo-blocking

Geo-blocking is a discriminatory practice that prevents online customers from accessing and purchasing products or services from a website based in another EU Member State. The new “Geo-blocking Regulation” , that will enter into force on December 3, 2018, will remove barriers to e-Commerce by avoiding discrimination based on customers' nationality, place of residence or place of establishment.

Under the current EU VAT regime, vendors on e-Commerce platforms need to take care of taxation of their supplies in the country of their B2C consumers . This however changes with the implementation of the new VAT action plan in 2019. Under the new law, vendors will only be deemed to have supplied goods to the marketplaces via which they sell their goods. This new regime will ultimately shift a significant burden from the vendors to the marketplaces, who will turn the benefit from the special new OSS (One-Stop-Shop) regimes.

By enrolling in the new OSS system, e-Commerce companies may reduce their numbers of VAT registrations. They will however also have to prepare themselves for the structure of the market prices and the systematic taxation in the European member states of destination. It is expected, that the e-Commerce sales markets will generate approximately 5 billion additional tax revenues – it remains to be seen what proportion will come from narrower business margins and how much will come from higher consumer prices.

III. Mandatory elements for e-commerce websites

E-commerce websites are required to abide by some of European legislation regulations. Notably, operators must notify users of a series of important aspects:

Post-contractual information (data protection, the right to withdrawal, remedies)

All of these policies are designed to offer a higher level of user security for those browsing e-Commerce websites .

IV. China’s First eE-Commerce Law

China is driving a boom in global e-Commerce retail sales, consequently, the issuing of the first fundamental law addressing e-Commerce in China on August 31, 2018, effective on January 1, 2019, is a clear evidence of the widespread awareness of the importance of this phenomenon. The new E-Commerce Law is a response to China’s growing use of e-Commerce in daily life, particularly via mobile platforms.

The aim of the comprehensive body of legislation is to improve regulation of the flourishing market and to reinforce punishments towards counterfeit and substandard items, in order to change the perception that China’s e-Commerce platforms are lax on enforcing IP laws and allowing fake merchandise to flood the marketplaces .

1. Definition of eE-Commerce

The e-Commerce, as defined and regulated by the E-Commerce Law, refers to domestic “business activities that sell merchandise or provide services on information networks such as the internet”. “Financial products and services, as well as services that use information networks to provide such contents as news information, audio-visual programs, publications, and cultural products” are expressly excluded from the purview of the E-Commerce Law.

2. Addressee of the E-Commerce Law

E-Commerce operators, to whom the E-Commerce Law is addressed, are classified into the following three categories :

E-Commerce platform operators, which refers to providers of a virtual place of business to the parties of an e-Commerce transaction, to enable them to carry out independent transaction activities (e.g. “Taobao” operator);

Operators on the platform, which refers to e-Commerce operators that sell goods or provide services to customers through platforms;

Other e-Commerce operators, which refers to e-Commerce operators that sell their own goods or provide their own services to costumers through self-established web sites or other channels (e.g. merchants on WeChat; non-traditional shopping channel will be covered by legislation).

Publishing details of licenses and other important information, Article 15 E-CLaw;

Following the rules for protection of personal information, Article 24 E-CLaw;

Disclosing information about goods or services, Article 17 E-CLaw;

Taking responsibility for any risks in the transportation of goods, Article 20 E-CLaw.

2. Specific Rules for Platform Operators

In addition to these provisions, e-Commerce platform operators are required to abide by a series of specific rules , which are not insignificant:

Assess and manage operators on their platform, Article 28 E-CLaw;

Submit the required information to government departments (industry and commerce, tax , etc.);

Develop service contracts and transaction rules for their platform and keep these prominently displayed . It is necessary to record and store goods, services and transactions information at least for a period of three years, Article 31 E-CLaw;

Abide by drafting and execution’s rules of e-Contract, Articles 48 to 57 E-CLaw;

Establish rules to protect intellectual property rights, Articles 41-45 E-CLaw. E-Commerce platforms and online retailers on platforms may lead to a fine of 500,000 Yuan (around 62,000 Euro) or up to 2 million Yuan (around 248,000 Euro) in serious cases , for failing to promptly react when a violation of IPR by merchants on their platforms is reported, as well as they operate unreasonably restricted transactions on the platforms or abuse their position of dominance to exclude or restrict competition.

Promote the protection of consumer’s rights and privacy. The E-Commerce Law stresses that operators must not create reviews to mislead consumers; show consumers targeted ads without also showing them non-targeted ads and make tied merchandise or services selected by default . Regarding the collection and refund of deposits, e-Commerce operators shall clearly explain the procedure for deposit refunds, shall not impose unreasonable conditions for refunds, and shall promptly provide refunds.

These provisions involve a comprehensive body of legislation that contains legal principles and rules governing the various aspects of e-Commerce: it covers issues such as the protection of consumer rights, the obligations of businesses, e-Contracts, electronic payments, cybersecurity, the protection of personal information, anti-competitive activity, and the protection of intellectual property rights. However, some areas still need clarification. For example, the relevant legal responsibility of online platform operators under the new law E-Commerce Law has not been made clear.

E-Commerce platform operators will be held accountable if they fail to adopt necessary measures when they know or should have known that the goods sold or services provided by operators on the platform do not meet personal or property safety standards, or that there are other actions that infringe the legal rights of the customers. Moreover, e-Commerce platform operators will be liable if they fail to adopt necessary measures when they know or should have known that operators on the platform have infringed intellectual property rights.

2. Corresponding lLiability

E-Commerce platform operators will be held accountable if they cause damage to consumers because they did not undertake their duty to check the qualifications of platform operators, or their duty to protect consumer safety .

VII. Effect on Non-Chinese Companies Ddoing Business in China

The new law supports the current effective regulations on foreign online trade, according which selling items online in China is an activity reserved to Chinese e-commerce platforms (Article 2 of E-CLaw), therefore foreign companies are not allowed to open an online shop in China, unless they have a Chinese partner company or a subsidiary in China . For the foregoing reason, the enactment of the China’s E-Commerce Law could represent a barrier to the development of foreign companies’ business.

VIII. Does the new Ee-Commerce Law boost intellectual property protection?

Doubts persist over the applicability of the provisions related to the intended boost of intellectual property protection, because, as defined and regulated by the E-Commerce Law, the new measures would disproportionately affect smaller platforms without the means to tackle counterfeiting as effectively as larger e-Commerce players like JD.com and Alibaba Group. Moreover, Article 41 of the E-Commerce Law stipulates that “E-Commerce platform operators shall establish rules for protecting intellectual property rights [...]”. The margin of discretion allowed to operators, does not permit to establish wide binding measures to root out the counterfeiting phenomenon.

IX. Initial Observations

The two-systems approach the topic in a different manner. The biggest difference between the European and the Chinese e-Commerce approach is that, on the one hand, China has been enabled to issue a comprehensive body of legislation addressing the e-Commerce sector in the Country and, on the other hand, the European Union is still providing a focused legislation to create a more open, integrated and competitive retail market and to foster an European Digital Economy and society with growth potential. There are also a several parallels between the China’s E-Commerce Law and the European approach. Both regimes are rooted in a shared desire for protection of consumers’ rights (Article 38 of e-CLaw); fair competition (Article 22 of e-CLaw) and protection of intellectual property (Articles 41-45 of e-CLaw) .